Davis Brown Tax Law Blog

Tax Law Blog: Tapping into Beer Tax Reform - May 18, 2015

Unknowing
to the casual beer drinker, at the bottom of your pint glass, a tax battle is
brewing. As the craft beer industry continues to boom, the margins of many
craft breweries have continued to tighten. Representatives of the industry have
taken to Congress to seek tax breaks for these small brewers, but the large,
multinational beer giants also want a pour from the tax-break tap.

Currently,
all brewers pay a federal excise tax, per 31-gallon barrel (about 248 pints),
based on the volume the brewer produces or imports. On its first 60,000 barrels
brewed or imported, breweries pay $7.00 per barrel. The tax increases to $18.00
for each additional barrel above 60,000.

The
Small Brewer Reinvestment and Expanding Workforce Act (Small BREW Act), H.R.
232, was introduced on January 8, 2015. The Small BREW Act seeks to lower the
federal excise tax on a brewer’s first 60,000 barrels from $7 per barrel to
$3.50 per barrel, and lower the rate on production above 60,000 barrels from
$18.00 to $16.00 per barrel. This rate would remain intact up to 2,000,000
barrels, at which point the rate would increase to the current $18.00 per
barrel.

The
Fair Brewers Excise and Economic Relief Act (Fair BEER Act), H.R. 767, was
introduced on February 5, 2015. The Fair BEER Act seeks an even stronger tax
break for the smallest brewers. The Fair BEER Act would eliminate the federal
excise tax on a brewer’s first 7,143 barrels. For each barrel between 7,143 up
to 60,000, the excise tax would be $3.50 per barrel, similar to the Small BREW
Act. Furthermore, the Fair BEER Act has identical taxes and thresholds as the
Small BREW Act for each barrel above 60,000--$16.00 per barrel up to 2,000,000,
and $18.00 per barrel for all barrels above 2,000,000.

While
the Fair BEER Act appears to be the most favorable to small brewers, it also
contains a provision causing strong opposition from domestic craft breweries
throughout the United States. Under the Fair BEER Act, the reduced excise tax
applies to all barrels of beer produced domestically OR imported into the U.S.
On the other hand, the Small BREW Act’s tax breaks apply only to barrels of
beer produced in the U.S. Therefore, while the Fair BEER Act provides a
lower excise tax on smaller brewers, it also awards a tax break to the large,
multinational breweries such as Anheuser-Busch InBev, MillerCoors, and
Heineken. Despite the Fair BEER Act’s more drastic cuts on tax for the small
brewers, many craft brewers prefer the Small BREW Act’s tax rates restricted
only to domestic brews. While the outlook for the two Acts remains unclear, the
differences between them will continue to polarize the beer industry, and are
not likely to be settled simply over a pint.